Mortgage information and advice from a St. Louis Mortgage Banker – Part 2 of a series

H. John Frank, Jr., President, Paramount Mortgage Co.

H. John Frank, Jr., President, Paramount Mortgage Co.

By: Dennis Norman

Yesterday I did the first post of my E-View TM with respected mortgage banker, H. John Frank, President of Paramount Mortgage Co. located here in St. Louis.

Today we continue with part two of the E-View TM:

Q-How many states require mortgage brokers/bankers to be licensed? Does licensing protect the consumer in your opinion? If so, how? If not, why not?

A-I don’t know how many states require licenses, but later this year (I believe around the 1st of August) most, if not all, states will adopt a National Licensing Law which will require all companies and Loan Officers to be registered and licensed. Continuing education will be required as well as surety bonds, criminal background checks, fingerprints, etc. will be mandatory. I’m not sure if this protects the consumers, but it surely will cut out’ many of the brokers. The government will begin tracking Loan Officer’s, as well as appraisers, to make sure ‘bad’ loan officers can’t just jump from state to state making bad loans to innocent, uneducated homeowners.

Q-Sub-prime loans have had the spotlight in the news for a while now. Can you talk briefly about what is (or more accurately was) a sub-prime loan?
a. On the surface it seems sub-prime loans would have been a tool that enabled a buyer that wouldn’t of had an opportunity otherwise, a chance to buy a home….this doesn’t sound bad but yet is being made out to be a bad thing. Why?
b. Assuming that I am correct in my assumption that there are not sub-prime loans out there now, are there resources for buyers that have less then perfect credit and lacking a large down payment?

A- Sub-prime loans were exactly what you said. They offered borrowers a way to get a home loan with less than the standard documentation that was normally needed. Originally, it was interest-only, for example, then non-income verification for ‘high’ credit scored borrowers, then ‘stated income loans (liar’s loans), NINA (no income no asset), Option ARMs etc. the less documentation, the more risk. The more risk, the higher the rate. Originally, these ‘special’ types of loans were only offered to high quality borrowers with high credit scores and lots of assets and equity.

As Wall Street demanded higher yield on their investments, more risky loans were made to borrowers whose credit wasn’t quite as good and who had unsubstantiated assets. The rest is history. Everything was built on the premise that the ‘continual’ rise in your home’s value would always allow homeowners to refinance, using their equity, if they couldn’t make their scheduled payment.

Today, there are still loans available for people with less than perfect credit. FHA and VA loans still allow delegated underwriters to manually underwrite loans giving borrowers the benefit of the doubt in many cases. Low down payments ($0 for Veterans and 3.5% down for FHA loans) are still available. Most state offer some sort of bond program that offsets even this small down payment requirement.

I’m going to stop here today but will pick up tomorrow where I left off.

To contact John for help with your financing needs, or with questions, you can reach him by phone at (314) 372-4300, email at hjfrankjr@paramountmortgage.com or you can visit his company website at http://www.paramountmortgage.com/.

To read part one of this series click here.

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